Which of These May Occur If a Firm Uses Its

question 71

Multiple Choice

Which of these may occur if a firm uses its overall cost of capital as the discount rate for all projects?
I.Profitable low-risk projects may be incorrectly rejected.
II.Only projects with risks similar to the current firm will be accepted.
III.Too many high-risk projects may be accepted.
IV.Only low-risk projects will be accepted.

• A)II only
• B)II and IV only
• C)I and III only
• D)I and IV only
• E)I,II,and III only

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Definitions:

Partnership Creditors

Individuals or entities to whom a partnership owes money or has some form of legal financial obligation.

Pro Rata

In proportion; according to the calculated share or division.

Apparent Authority

A situation in which a reasonable person would understand that an agent had authority to act, even if the agent did not have actual authority.

Winding-up Partners

The process of closing down a partnership, involving settling its debts and distributing any remaining assets among the partners.